THE MINERAL INDUSTRY OF

PAPUA By Travis Q. Lyday comprises the eastern one-half of the drilling produced additional discoveries of oil at Agogo, Gobe of New Guinea (which is the second largest island Main, Southeast Gobe, and South Mananda and an even larger in the world), an archipelago of an additional three number of gas discoveries at Angore, Elevala, Hides, Ketu, (Bougainville, New Britain, and New Ireland), and about 600 Pandora A and B, P’nyang, and Southeast Hedinia, on which smaller islets, atolls, and coral reefs. The 463,000-square- more than $1 billion had been spent (Papua New Guinea kilometer (km2) nation, which includes 9,980 km2 of territorial Chamber of Mines and Petroleum, 2000, p. 6-9). waters, is located east of Indonesia between the Coral Sea and Although changes in Government leadership have been the South Pacific Ocean and lies just north of the Australian peaceful since the country’s independence in 1975, Papua New Continent. Papua New Guinea was formed by the merger Guinea has struggled to develop nationhood status throughout of the Australian territory of Papua and the German colonial its 27-year existence. The country’s population is diverse possession of New Guinea following World War I. and spread out in isolated villages. Ethnic strife has become administered Papua New Guinea until 1975 when it became an commonplace as evidenced by civil unrest in Bougainville and independent state. tribal skirmishes in the Highlands. These conflicts have had Historically, mining has played a prominent role in Papua a negative impact on exploration, financial investment, and New Guinea’s economy. In 1888, the first significant discovery mining. Land disputes have become common because land is of gold was made when the search for new bonanza alluvial communally held and the country has no real system of land gold deposits brought Australian miners from to registration. Sudest Island in the . This discovery was In 2002, Papua New Guinea’s real gross domestic product followed by gold rushes at Misima and Woodlark Islands in (GDP) declined by 0.5% at purchasing power parity, which the Solomon Sea and then on the mainland, which culminated was a continuation of the recessions of 2000 and 2001 when in discoveries at Wau in 1922 and the adjacent Edie Creek in the GDP contracted by 1.2% and 3.3%, respectively (Asian 1926. Hardrock mines were established on Misima, Sudest, and Development Bank, 2001§1). The mining sector contributed Woodlark Islands when the alluvial gold was exhausted; of the an estimated 15.5% to the nation’s GDP in 2002; the petroleum three, however, gold mining continued only at Misima following sector, about 9%. About 70% of Papua New Guinea’s export World War I. The rich discoveries at Edie Creek lead to the income was derived from these two sectors, although they establishment of a number of underground hardrock mines employed only about 2% of the country’s workforce. An near there and at nearby Wau, as well as large-scale dredging estimated 85% of the country’s population of 5.2 million relied operations in the Bulolo Valley, which started in 1932. By 1939, on subsistence and commercial agriculture and fishing for eight large dredges were operating in the Wau-Bulolo Valley, their livelihood. Papua New Guinea’s mineral resources were and, except for the interruption during World War II, dredging difficult and expensive to mine, and exploration and production continued until 1965 when the last dredge was abandoned. were hampered by rugged terrain, the high cost of developing Spurred by the fabulous riches of Edie Creek, prospectors infrastructure, and the nation’s poor road infrastructure. ventured into other parts of the mainland and the outer islands; Nevertheless, Papua New Guinea was the 11th leading gold and they eventually mined gold at Kainantu, , and the 13th leading copper mining country in the world in 2002 Porgera in the Highlands, along the River in the north, and (World Bureau of Metal Statistics, 2002, p. 37, 79). at Kupei on Bougainville Island (Papua New Guinea Chamber of Mines and Petroleum, 2000, p. 9). Government Policies and Programs Petroleum exploration also is not new to Papua New Guinea. Oil companies have been searching diligently for recoverable Although the mining and petroleum industries together oil and gas reserves since the first reports of oil seeps near accounted for 28% of the country’s GDP in 2002 (19% for along the coast of the Gulf of Papua in 1911. Although mining and 9% for petroleum), the Federal Government began first oil was not discovered until 1922, 94 exploratory wells a review of the sectors with the intent of proposing even more had been drilled by the time of independence in 1975. Buoyed attractive measures for investment. A number of incentives by the successful discovery of oil in 1986, exploration activity were adopted, which included the following: increased, and in 1989 alone, 32 wells were drilled. Exploration • Abolition of additional profits tax in the mining sector; • Relaxation of the “ring-fence” provision to allow a tax deduction of up to 25% of allowable exploration expenses 1References that include a section mark (§) are found in the Internet provided that the deduction does not reduce the tax payable References Cited section. by more than 25%;

THE MINERAL INDUSTRY OF PAPUA NEW GUINEA—2002 20.1 • Double deduction of preproduction exploration costs. The The Petroleum Act of 1992 deals with the types of petroleum first 100% deduction would be allowed as a deduction against licenses that are available, registration of interests and dealings assessable income. The second deduction would arise only in tenements, compensation for owners and occupiers of once commercial production begins; affected lands, and payments of rents, fees, and royalties. The • A new accelerated depreciation arrangement of a 25% following types of licenses may be issued under the Act: declining balance depreciation pool for all assets of any new • Petroleum prospecting license—Confers the exclusive right development, irrespective of their useful life; to explore for petroleum, but the holder is required to enter • Elimination of the loss carry-forward time limit; and into an additional agreement with the Government regarding • Government agreement to review its position on equity exploration and development within the tenement area. participation in mining and petroleum projects. In 2002, • Petroleum development license—Gives tenure to recover and the Government had the option of taking a paid equity stake own the petroleum and to construct and operate all necessary of up to 30% in a project at the time a special mining lease facilities. was issued, which was considered by the industries to be a • Pipeline license—Confers the authority to construct and disincentive to investment in the country. operate a pipeline system and related facilities. In Papua New Guinea, all minerals on and below the surface of any land are the property of the State, which has the right Production to allow suitable persons to explore for, mine, and sell mineral resources. The right to explore for, mine, and sell mineral The country’s producing mines consisted of four very large resources is granted in the form of mineral tenements, which operations, one medium-sized enterprise, and a large small-scale are for a fixed term over a fixed area and are granted to persons sector that included numerous mechanized alluvial gold mines or companies committed to programs of exploration or mining and primitive, individually operated manual gold panning/ development approved by the State. Tenements are not granted sluicing workings. The major operations were the Lihir gold for the purpose of retaining mineral rights indefinitely. The mine in , the Ok Tedi copper-gold mine Mining Act of 1992 simplified the administration of and reduced in Western Province, the Misima gold-silver mine in Milne Bay the types of tenements available, which are as follows: Province, and the Porgera gold mine in . The • Exploration license—Granted for a term not exceeding 2 years smaller Tolukuma gold-silver mine in Central Province also and renewable for 2-year terms over an area not exceeding was a significant producer. Projects in the petroleum sector 2,500 km2. included the Central Moran, Gobe Main, Kutubu, and Southeast • Mining lease—Granted for a term not exceeding 20 years Gobe oilfields in the Gulf and Southern Highlands Provinces. and renewable for terms of up to 10 years. Normally granted These facilities produced virtually all the country’s mine for small- to medium-scale mines and some alluvial mine production, excluding clays, sand and gravel, and stone used developments. The holder must comply with approved for construction purposes. Two projects were in an advanced proposals for development and other prescribed mining lease stage of exploration and development—the Morobe gold-silver conditions. prospect in and the nickel prospect in • Special mining lease—Granted for a term not exceeding 40 Province. years and renewable for terms of up to 20 years. Normally granted for large-scale projects and requires a mining Commodity Review development contract to be negotiated. The holder must comply with approved proposals for development and other Metals prescribed mining lease conditions. • Alluvial mining lease—Granted for a term not exceeding 5 Copper.—In 2002, all the country’s copper production years and renewable for terms of up to 5 years for an area was mined from the , which is located at the not exceeding 5 hectares. The holder must be a landowning headwaters of the Ok Tedi River on Mount Fubilan in the Star citizen. Mountains about 18 kilometers (km) east of the border with • Lease for mining purposes—Granted for the same term as that the Indonesian Province of Papua and 20 km northwest of the of the tenement with which it is associated. It is granted for town of where the mine operator, Ok Tedi Mining Ltd. construction of the project infrastructure and facilities. (OTML), was headquartered. Copper production at Ok Tedi • Mining easement—Granted for the same term as that of began in 1987 following 3 years of gold-only production. The the tenement with which it is associated. It is granted for opencut operation used conventional truck-and-shovel methods construction and operation of project facilities such as roads, to mine approximately 30 million metric tons per year (Mt/yr) power transmission lines, waterways, pipelines, bridges, or of ore and 55 Mt/yr of waste rock. About 200,000 metric tons tunnels. per year (t/yr) of copper-in-concentrate and 12,500 kilograms All tenements, with the exception of special mining leases, per year (kg/yr) of gold-in-concentrate were produced. The final are granted by the Minister for Mining on recommendation by concentrate, which contained about 34% copper and 20 grams the Mining Advisory Board. Special mining leases are granted per metric ton (g/t) gold, was then thickened and piped 137 km by the head of state (Papua New Guinea Department of Mining, to handling facilities at Kiunga for filtering and drying before 2001, p. 4). shipment down the Fly River in 2,500-metric-ton (t) barges

20.2 U.S. GEOLOGICAL SURVEY MINERALS YEARBOOK—2002 (Resource Information Unit, 2002, p. 51). The OTML joint operated by Durban Roodepoort Deep Ltd. of South Africa, venture was owned by PNG Sustainable Development Program which obtained it through the takeover of Dome Resources Co. Ltd. (52%), which was an independently managed trust NL. Access to the mine was solely by helicopter, and all mine company that had set up a long-term fund to receive allocations activities were helicopter-supported. The mine has produced for sustainable development after the mine is closed; the Papua more than 431,532 troy ounces (12,200 kg) of gold and silver New Guinea Government (30%); and Canadian-based Inmet since the start of production in 1995. Although the mine Mining Corp. (18%). Under the current life-of-mine plan, life initially was estimated to be 5 years, exploration of the mining operations were expected to cease around mid-2010 identified minable reserves has continued to be positive, and the when readily accessible ore was exhausted (BHP Billiton Ltd., mine life was expected to extend several more years. Resources 2001). at the end of December 2002 were 300,000 troy ounces (8,500 kg) of gold (Durban Roodepoort Deep Ltd., 2002). Gold.—Highlands Pacific Ltd. was granted a mining lease for underground development at the Irumafimpa mineralized zone Nickel.—At yearend 2001, the Ramu nickel project was within the Kainantu Goldfield, Eastern Highlands Province. The owned by Highlands Pacific Ltd. (68.5%) and Orogen Minerals project was expected to become operational in 2004 following (31.5%) both of which were Papua New Guinea-registered additional engineering studies. Japan’s Nippon Mining and companies. The Ramu site is a predevelopment nickel and Metals Co. Ltd. had a $2 million production royalty for a project cobalt project that is located about 75 km southwest of the that would produce in excess of 25,000 troy ounces per year provincial capital of Madang on the northern coast of Papua (710 kg/yr) of gold at Kainantu (Resource Information Unit, New Guinea. A $22 million bankable feasibility study was 2002, p. 104). completed in 1998, which indicated that at a capital cost of $838 Lihir Gold Ltd. owned the Lihir open cut mine in the Luis million, a lateritic nickel mining project could produce 33,000 Caldera, which is located about 700 km northeast of Port t/yr of nickel metal and 3,200 t/yr of cobalt sulfate at an average Moresby on Lihir Island, New Ireland Province. Processing operating cost of $0.41 per pound ($0.19 per kilogram) of nickel of oxide ore at the $800 million 3.6-Mt/yr operation began in during a 20-year mine life, although the mineral resource was May 1997, and sulfide-ore-processing began later that year in expected to support a mine life of 40 years. About 4.6 Mt/yr September. The mine supplied high-grade ore for immediate of ore was to be mined to feed 3.2 million metric tons (Mt) of processing and lower grade ore that was stockpiled for future upgraded ore by a 134-km slurry pipeline to a refinery on the gold production. Because nearly all the ore was refractory, adjacent Rai coast. The ore was to be processed by pressure it was treated by pressure oxidation technology. Mining was acid leach technology. Construction of the project was projected expected to end at Lihir around 2014, but processing of the to take up to 30 months (Highlands Pacific Ltd., undated§). lower grade stockpile was expected to continue during the following 20 years. Silver.—Placer Dome owned 80% of the Misima Mine on A grinding circuit pebble crusher was commissioned in in along with Papua New September 2002 and was operating at full design rates by Guinea’s Orogen Minerals, which owned a 20% share and had November. Although throughput was at record levels, lower its headquarters in . Mining was completed at the gold grades and operational difficulties resulted in somewhat Misima Mine in May 2001, and production was diverted to the lower production than that of 2001. processing of stockpiled ore. Stockpile milling was anticipated Exploratory drilling during the year succeeded in increasing to continue into 2004. As of December 2001, reserves were identified resources by 6.5 million troy ounces [184,300 11.72 Mt at 0.9 g/t gold and 9.8 g/t silver for a total of 327,000 kilograms (kg)] and reserves by 2.2 million troy ounces (62,400 troy ounces (9,270 kg) of gold and 3.7 million troy ounces kg). (104,895 kg) of silver. Placer Dome Inc. of the United States increased its equity in the Porgera open cut operation to 75% in 2002 through a Mineral Fuels takeover offer by AurionGold Ltd.; the other shareholders were Orogen Minerals Ltd. with 20%, and Mineral Resources Petroleum and Natural Gas.—The Hides gas project, which Porgera Pty. Ltd., 5%. Orogen Minerals and Mineral Resources began production in 1992, was the country’s first petroleum represented the Government of Papua New Guinea and project. All gas produced was sold to the Porgera joint venture local landowners. In August, the Porgera joint venture was for power generation at its gold mine. In October 1996, the experiencing continued interruption of its power supply as a country’s first successful oilfield, Kutubu, was developed in result of election-related vandalism of the power pylons along Southern Highlands Province and is located 480 km northwest the Porgera-Hides line; the damage caused prolonged outages of Port Moresby. This was followed by development of the that brought on closure of the mill and a 10% reduction of Gobe oilfield, which included two production licenses for production [60,000 troy ounces (about 1,700 kg)]. The open Southeast Gobe and Gobe Main. A third project, the Moran pit mine was opened in October 2002 and production at the Project, started producing oil under an extended well test underground mine, which had been suspended in 1997, was arrangement in 1998. The development license, however, was restarted in the last quarter 2002. not issued until February 2001, and construction of the facilities The Tolukuma Mine is located about 100 km north of Port was not completed until 2002. The economic lives of these Moresby in Central Province and was wholly owned and gasfields and oilfields are expected to end as follows: Hides in

THE MINERAL INDUSTRY OF PAPUA NEW GUINEA—2002 20.3 2011 when the Porgera Mine was expected to close, the Kutubu Highlands Pacific Ltd., [undated], Ramu nickel-cobalt project, accessed fields in 2009, the Gobe fields in 2004, and the Moran Project in September 10, 2002, via URL http://www.highlandspacific.com. U.S. Central Intelligence Agency, 2002, Papua New Guinea, World Factbook 2011. 2002, accessed March 30, 2002, at URL http:///www.odci.gov/cia/ publications/factbook/geos/pp.html#Trans. Infrastructure Major Sources of Information Essential elements of the country’s transportation infrastructure included 19,600 km of roads, of which 686 km Government Departments was paved and 18,914 km was unpaved. The length of island waterways totaled about 10,940 km and was of little importance Department of Mineral Resources to the transportation industry. Of the 492 airports, 19 principal Private Mail Bag PO, Port Moresby 121 airports had permanent-surface runways. International shipping Konedobu, Port Moresby NCD ports included Kieta, , Madang, Port Moresby, and Rabaul. Papua New Guinea The country had no railroads. The merchant marine fleet of Telephone: +675 321 1961 ships of 1,000 t or more gross weight included 2 bulk and 10 Fax: +675 321 7958 cargo carriers, 1 chemical tanker, 1 combination ore carrier/oil Department of Petroleum and Energy tanker, 3 petroleum tankers, 1 container ship, and 3 rollon/rolloff Level 3, P.O. Box 1993 carriers. The country’s only crude oil pipeline was 264 km in Port Moresby NCD, Papua New Guinea length (U.S. Central Intelligence Agency, 2002§). Telephone: +675 322 4200 The vast majority of the country’s infrastructure was Fax: +675 322 4222 concentrated in the Provincial capitals; therefore, the lack Internet: http://www.petroleum.gov.pg of infrastructure for most of the country remained a distinct Geological Survey of Papua New Guinea hindrance to mineral exploration, mine construction and P.O. Box 778 development, and transportation of mined products. Port Moresby NCD, Papua New Guinea Telephone: +675 212 422 References Cited Fax: +675 211 360

BHP Billiton Ltd., 2001, BHP Billiton background briefing on Ok Tedi: Organization Melbourne, Australia, BHP Billiton Ltd., December 12, 5 p. Durban Roodepoort Deep Ltd., 2002, Focus expands to include exploration, Chamber of Mines and Petroleum growth—DRD performance improvement continues: Johannesburg, South Africa, Durban Roodepoort Deep Ltd. press release, January 24, 3 p. P.O. Box 1032 Papua New Guinea Chamber of Mines and Petroleum, 2000, Profile—Papua Port Moresby NCD 121, Papua New Guinea New Guinea, in Mining and Petroleum Investment Conference, 6th, Sydney, Telephone: +675 321 2988 Australia, December 4-6, 2000, Proceedings: Port Moresby, Papua New Fax: +675 321 7107 Guinea, Papua New Guinea Chamber of Mines and Petroleum, 92 p. Papua New Guinea Department of Mining, 2001, Minerals policy handbook: E-mail: [email protected] or Port Moresby, Papua New Guinea, Papua New Guinea Department of [email protected]. Mining, March, p. 4. Internet: http://www.pngchamberminpet.com.pg. Resource Information Unit, 2002, Register of Indo-Pacific mining 2002: Subiaco, Australia, Resource Information Unit, 260 p. World Bureau of Metal Statistics, 2002, World metal statistics—August 2002: London, United Kingdom, World Bureau of Metal Statistics, 150 p.

Internet References Cited

Asian Development Bank, 2001, Papua New Guinea—Economic performance, Annual Report, accessed August 27, 2002, at URL http://www.adb.org/ Documents/Report/Annual_Report/2001/PNG.asp.

20.4 U.S. GEOLOGICAL SURVEY MINERALS YEARBOOK—2002 TABLE 1 PAPUA NEW GUINEA: PRODUCTION OF MINERAL COMMODITIES1

Commodity2 1998 1999 2000 2001 2002p Copper, mine output, Cu content metric tons 152,200 187,921 203,061 203,762 204,000 Gas, natural million cubic meters 1,378 1,353 1,438 1,434 1,450 e Gold, mine output, Au content kilograms 61,641 65,747 74,540 67,043 70,000 Natural gas liquids 42-gallon barrels 105,527 105,460 224,857 186,190 200,000 e Petroleum, crude thousand 42-gallon barrels 29,479 32,020 24,967 20,423 20,000 e Silver, mine output, Ag content kilograms 59,294 66,542 79,197 69,368 73,000 eEstimated. pPreliminary. 1Table includes data available through February 10, 2004. 2In addition to the commodities listed, cement and crude construction materials (common clays, sand and gravel, and stone) are produced, but output is not reported quantitatively, and available general information is inadequate to make reliable estimates.

THE MINERAL INDUSTRY OF PAPUA NEW GUINEA—2002 20.5 TABLE 2 PAPUA NEW GUINEA: STRUCTURE OF THE MINERAL INDUSTRY IN 2002

(Metric tons unless otherwise specified)

Annual Commodity Major operating companies and major equity owners Location of main facilities capacitye Cement thousand tons PNG-Halla Cement Pty. Ltd. (Halla Cement Corp. of the Republic Lae, Morobe Province 500 of Korea, 50%; Government of Papua New Guinea, 50%) Cobalt do. Highlands Pacific Ltd., 68.5%, and Government of Papua New Ramu nickel-cobalt project, Madang 3 Guinea, 31.5% Province, 75 km southwest of Madang Copper do. Ok Tedi Mining Ltd., operator [BHP Billiton Ltd., 52%; Government Ok Tedi open cut, Western Province, 20 210 of Papua New Guinea, 30%; Inmet Mining Corp. (Canada), 18%] km northwest of Tabubil, 390 km southwest of Gold Lihir Gold Ltd., operator, 100% Lihir open cut, Lihir Island, New Ireland 18 Province, 700 km northeast of Port Moresby Do. Misima Mines Pty. Ltd. (Placer Dome Inc., operator, 80%; Orogen Misima open cut, Misima Island, Milne 6 Minerals Ltd., 20%) Bay Province. Do. Aurora Gold Ltd., manager, 50%, and CDC Financial Services Morobe open cut, 250 km north of Port 9 (Mauritius) Ltd., 50% Moresby, Morobe Province Do. Ok Tedi Mining Ltd., operator [BHP Billiton Ltd., 52%; Government Ok Tedi open cut, Western Province, 20 20 of Papua New Guinea, 30%; Inmet Mining Corp. (Canada), 18%] km northwest of Tabubil, 390 km southwest of Wewak Do. Placer Dome Inc., operator [Highlands Gold Properties Ltd., 25%; Porgera open cut, Enga Province, 620 km 30 Placer (PNG) Ltd., 25%], Goldfields Porgera Ltd., 25%, Orogen northwest of Port Moresby Minerals Ltd., 20%, and Minerals Resources Porgera Ltd., 5% Do. Dome Resources NL, 100% Tolukuma underground mine, Central 2 Province, 100 km north of Port Moresby Natural gas Oil Search Ltd., operator, 100% Hides Gasfield, Southern Highlands 425 thousand cubic meters per day Province. Onshore Papuan Basin, petroleum development license Nickel thousand tons Highlands Pacific Ltd., 68.5%, and Government of Papua New Ramu nickel-cobalt project, Madang 33 Guinea, 31.5% Province, 75 km southwest of Madang Petroleum Petroleum development license 2: Chevron Niugini Ltd., opeerator Central Moran oilfield, Southern 15 thousand 42-gallon barrels per day and manager, 19.37%, Oil Search (Kutubu) Ltd., 27.14%, Orogen Highlands Province (includes Agogo and Minerals Ltd., 25.44%, ExxonMobil Corp., 14.52%, Petroleum Iaqufi-Hedinia Fields). Onshore Resources (Kutubu) Ltd., 6.75%, and Merlin Petroleum Co., 6.78%. Papuan Basin, petroleum development Petroleum development license 5: ExxonMobile Corp., operator licenses 2 and 5 Petroleum development license 5: ExxonMobile Corp., operator and manager, 47.5%, and Oil Search Ltd., 52.5% Do. do. Chevron Niugini Ltd., operator and manager, 19.37%; Oil Search Gobe Main oilfield, Southern Highlands 10 Ltd., 27.14%, Orogen Minerals Ltd., 30.19%, ExxonMobil Corp., Province. Onshore Papuan Basin, 14.52%, Merlin Petroleum Co., 6.78%, and Petroleum Resources petroleum development license 4 Ltd. (Gobe), 2.0% Do. do. Chevron Niugini Ltd., operator and manager, 19.37%, Oil Search Kutubu oilfield, Southern Highlands 50 Ltd., 27.14%, Orogen Minerals Ltd., 25.44%, ExxonMobil Corp., Province. Onshore Papuan Basin, 14.52%, Petroleum Resources (Kutubu) Pty. Ltd., 6.75%, and petroleum development license 2 Merlin Petroleum Co., 6.78% Do. do. Santos Ltd., operator and manager, 15.5%, Southern Highlands SE Gobe oilfield, Gulf and Southern 10 Petroleum Ltd., 39.14%, Orogen Minerals Ltd., 20.5%; Oil Highlands Provinces. Onshore Search Ltd., 15.50%, Cue PNG Oil Co. Ltd., 5.42%, Petroleum Papuan Basin, petroleum development Resources (Gobe) Ltd., 2.0%, and Mountains West Exploration, licenses 3 and 4 Inc., 1.94% Silver Misima Mines Pty. Ltd. (Placer Dome Inc., operator, 80%, and Misima open cut, Misima Island, Milne 100 Orogen Minerals Ltd., 20%) Bay Province. Do. Aurora Gold Ltd., manager, 50%, and CDC Financial Services Morobe open cut, 250 km north of Port 124 (Mauritius) Ltd., 50% Moresby, Morobe Province eEstimated. km--kilometer(s).

20.6 U.S. GEOLOGICAL SURVEY MINERALS YEARBOOK—2002